Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Different Cost of Capital with Changed Proportions: It is quite possible that the specific costs of capital of different sources may be affected by the amount of funds' raised and the proportion of a particular source may also change as a result of new funds. Consequently, the WMCC may also change and vary differently. For example, following is the capital structure of firm:
Now suppose, the firm has an investment proposal of Rs. 10,00,000 and expect to generate retained earnings of Rs. 2,00,000 from the current operations. The remaining funds are raised by the issue of Equity share capital (Rs. 6,00,000 at 12%) and 12% Bonds (Rs. 2,00,000). The WMCC of the firm can now be ascertained as follows:
WMCC =.6 (.12) +.2 (.11) +.2 (.06) = .106 or 10.6%.
The WACC of the firm can now be calculated as follows:
Source
Amount (Rs.)
Weight
C/C
Weight )( C/C
Equity share capital
25,00,000
.417
.11
.0458
6,00,000
.100
.12
.0120
Retained earnings
12,50,000
.208
.105
.0228
2,00,000
.033
.0036
11 % Debentures
.209
.055
.0115
12% Debentures
.060
.0020
60,00,000
1.000
.0977
The WACC of the firm is .0977 or 9.77%. So, the WACC has increased from 9.6% to 9.77% as a result of WMCC of 10.6% (which was higher than the then WACe). So, the WMCC has lifted the WACC.
Explain Capital Budgeting and its methods.
(i) No External Financing: - Walter' model presume that the firm's investment are financed exclusively by retained earnings and no external financing is used. If it was therefore t
Along the dimension of security, bonds can be classified into unsecured (straight) bonds and secured (mortgage) bonds. Unsecured bonds have no charge on any speci
evaluate the importance of leverage in a small scale companyestion..
M has recently joined the board of X Company, a main listed confectionary manufacturer. The company was established as a family business over a century ago and members of the found
Discuss the applicability ofan operating cycle in a poultry business(consider broilers)
Q. Explain the concept of working capital. Distinguish between variable and permanent working capital. What is the significance of such distinction in financing working capital req
What is the Modigliani and Miller theory of dividends? Explain. The Modigliani-Miller theory of dividends states that dividend theory is not relevant. They state that it is the
Contingency Planning: Once the events are evaluated and categorised, and the levels of risk attaching to them have established. The organisation should then commence pla
Question : (a) A project must have a useful purpose. Therefore, as a project is evaluated, the team should determine the requirements of the local community and industry. These
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd